TSX NEAR TERMED PAIN, LONG TERMED GAIN

August 25, 2023No Comments


Hello and welcome once again to the Smart Money Dumb Money Show. And I’m your host, as usual, Keith Richards. I am the President of ValueTrend Wealth Management, and I’m a technical analyst. And today we’re going to look at the TSX. We’re gonna look at some charts, what else is new, right? So I’m gonna share screen. I’ve put together a little bit of a PowerPoint as I often do. And, we’re gonna look at a few things surrounding the TSX and the outlook for it over the coming month, two months, whatever that may be. It’s a short-term outlook, but I did want you to take a look at this because it differs a little bit from the S&P 500 that I often talk about. So this video, as you can see, was recorded on the 16th. And I’m just going to attempt to go from the beginning.

oops. wanna back up a little. There we go. So this video was recorded on the 16th of August, and that means that the charts are active to the close of the 15th, and you usually will end up seeing my videos about one week after they are published. So you have to take that into account. So some of the information I’m going to be talking about today is going to be a little bit like yesterday’s news, ’cause I’m going to talk about the CPI Report that came out during this week as I record. And this is going to be well absorbed into the market. And then in fact, this week, as I record this, it’s being absorbed into the market as we speak. So let’s get started. I wanted to start off with the seasonals. You guys have seen these charts before. They’re equity clock charts.

I sometimes use them on my blogs. And this is just the TSX seasonality chart, pretty similar to the S&P 500 in that the summer tends to be weak. The TSX in particular tends to really experience some weakness into September-October, versus when you look at the S&P, it’s typically a little bit weaker between July-August, not to say on this chart that you’re not seeing weakness in July and August, but the real noise comes in usually in September. That’s just an average. Just keep in mind, please, that seasonality is just a tendency. It’s not an absolute. There’s no guarantee that after October, the markets will go up until May. As you can see on this chart, there’s also no guarantee that we will in fact see a sell-off between August and October on this index or any other index.

It’s a tendency, and by the way, seasonality charts are performance charts. They’re not price charts. So if you see on the left-hand side of the scale here, it’s percentage. So what this is telling you is that on average, between July, about mid-July and about very early October, the TSX goes from here, which is about four and a half down to, let’s call this one and a half. So it has maybe a on average a 3% decline over that time period. So that’s how you read it. It’s a percentage that you have to look at, not raw price. So it’s a – it’s an on average, the index can lose about 3% or so over this time period. But that’s an average. Doesn’t mean anything as far as absolutes, it’s just something to keep in mind. So let’s take a look at the big picture, which is sorry, I should say this is the near-term picture.

So this is the TSX since the bottom of the overall market crash or correction, or whatever you want to call it from 2022. Everybody knows the bottom was in October, there’s your bottom, and then it rallied up as did most markets. But the TSX, unlike the S&P because of S&P’s technology influence, and I’ve talked about that probably too much on my blogs and videos. The S&P has been largely driven by those technology stocks. In particular, the what do they call it? The seven mag — magnificent seven. So the TSX doesn’t have these elements, so it’s been stuck in a very sideways pattern, but it’s been really, really predictable as you can see. In fact, you can see it. The TSX likes the land somewhere around 20,700-20,800, somewhere around there.

And then it likes to decline down to about 19,300 there in about. And that’s, that’s been a pretty darn predictable pattern. Now, I just wanna point out here, you’ll see this gap on the chart and this big bar down. Alright, so this was, I’m doing this on the 16th, so this would’ve been the other day. And we did see the market sell-off. CPI was announced I think it was in the close of Tuesday the 14th, but I may be wrong. Whatever the case, the market reacted on the 15th, and CPI was announced as 3.3%. So inflation year-over-year is at 3.3%, and consensus was 3%. Now, if you really get down to it, long-term inflation in North America, both Canada, US tends to average around three to three and a half percent. Like if you go back like 50 years, the long-term average has been like right around where it is right now.

So we shouldn’t be panicking. But the problem is, we’ve got two situations. Number one is everybody’s kind of got used to 2%, and both the Fed and Bank of Canada both said, Hey, we’re aiming at 2% again, which may be a fantasy, and I’ve talked about that before. But more importantly, core inflation, which is things like your gas and your food are way higher than 3%, like way higher. I, if I’m not mistaken, it’s in the 4 and a half to 5% range. So you have to take into context that the large picture, CPI, sure it includes autos and stuff like that, houses, but really the ‘guy on the street’ so to speak, is feeling inflation more than someone who’s looking to buy a new Mercedes-Benz. So this 3.3% average, the Fed and the Bank of Canada in this case are eyeing this more from how, as well as, is it affecting individuals who are trying to live day-to-day.

So the fact that CPI went up and it pretty much went up, backed on the essentials, the core stuff, not so much on autos and big-ticket items. The other thing is that monthly CPI doubled consensus. It came in at 0.6. So in other words, there’s been a spike in July. Like, it wasn’t just sort of a little bit higher than expected. It was like a lot higher. It was twice as much as we expected. And that’s again, CPI, it is not core stuff. It is the big-picture inflation. So clearly the Bank of Canada is going to be concerned and is highly, highly, highly likely to raise rates. It’s kind of baked in. But the news that came out on this CPI Report really pushed that any hope of the Fed pausing, is now been eradicated.

The Fed sorry, I’m saying the Fed, the Bank of Canada is not going to pause. They’re not going to slow down on their tightening because both the pic picture and the core picture of inflation is nasty. And so when we look at this daily chart, where will it land? Well, it tells you right here that there’s a pretty good chance that you could get somewhere in that 19,300 to let’s call it, you know, 19,500 or so area. And currently, we’re just breaching to 20,000. So you could see another several hundred points to maybe a thousand points on the TSX before this little sell-off is over. But keep in mind that that’s probably going to be opportunistic and that’s where the seasonality comes in. Where will this happen and where might this end up? Well, maybe, by the end of September, it’s again, not something I’m going to bank on, but we’re starting to put the pieces of the puzzle together. Where might it land down here? When might it land there?

Hmm, maybe early fall. Okay, so let’s take a look at a little bit longer term picture. ’cause that was a short-term look, there’s your choppy, sideways thing that we were just looking at. But one of the things I want you to notice is that the stochastics, which is a very, very quick-moving indicator. Now, keep in mind this is a weekly chart and the RSI, which is a slower-moving indicator and MACD, which is a very slow-moving, momentum indicator. All of these have been diverging negatively against the market. So that really gave us a heads-up a while back that the market was likely to sell off. And by the way, we saw the same thing on the US indices. Not so extreme though. Now, any of you that saw the video that I did with Brooke Zachery, we were on our bikes.

it’s called, ‘Riding the Markets’, and we talked about this. We talked about how we both felt before the recent sell-off started we were suggesting that the market is right for a pullback. And if you saw my last BNN show, back in July, I was also suggesting strongly that the market would correct. So none of this is surprising me and it’s because of the stuff that you guys see on this chart right here. I’m showing you old news, but it’s still worthwhile keeping in mind that divergence usually means some sell-off. So I’m just going to end the slides there and just finish up by suggesting that I like the TSX. I like the opportunities that will probably come in when it comes down to the support level. And I also like the composition of it because it’s not so much technology.

I think it’s got a different set of sectors that might be considered value sectors right now, like energy, materials, that kind of thing that we should be looking at. And in fact, ValueTrend has been holding materials — gold, energy, that kind of thing — in our portfolio because we figure that that’s going to be the safer place to be over the coming months just due to the excess on the tech side. Not to say that technology stocks won’t rally because I think they will, I think there’s gonna be opportunity in them, but they have further to fall. So in my opinion, by the way, that’s not an absolute, nothing’s absolute. So, all in, the TSX probably has a little bit more downside left before we do see a bottom. But if you take note of where that support level is on the chart and how strong that support level has been, you probably agree with me that there might be a real opportunity coming on the TSX if, (as in when) we get close to that support level. As always, watch for support to hold, give it a few times, you don’t, few days I should say. You don’t just

buy because the market hit your target. You need to see that target held. But I definitely think that there’s a massive opportunity coming for investors. And the only thing that will change my mind on that is if we see those support levels break. Remember, we have to be agnostic about this stuff. I can make predictions, I can make suggestions as to where a market might go, but at the end of the day, the market is going to dictate what we’re going to do. And that’s why we have to wait to see if support is held before we buy because it could crack. And there’s many reasons that it might do so. Either way, we’re gonna trade sensibly, we’re gonna follow our plan, and I know you will because you watched this video series and you read my blogs. Thanks for watching.

 

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